All questions

Discontinuing employment

i Dismissal

Under the Labour Law, an employee may not, regardless of whether the contract is an indefinite or fixed-term contract, be dismissed without cause unless the dismissal occurred during and pursuant to the employee's validly negotiated probationary period. Rather, dismissal must be supported by a valid reason specified in a written notice. There is no guidance as to the scope of a valid reason, and there is some evidence to suggest that courts are more willing to find a valid reason for dismissal when the employee is an expatriate, rather than a Saudi Arabian national.

An employer may dismiss an employee bound to a fixed-term contract in one of the following three ways: non-renewal of the employment contract at the end of the contract's duration; an event that triggers any of the contract's terms with respect to dismissal or termination, unless such terms are contrary to the Labour Law or to Saudi public policy; or a conversion of the fixed-term contract to an indefinite term employment contract, which permits termination with 60 days' notice and a valid reason – however, the Labour Law provides that the expiration date of the work permit shall serve as the fixed term of the contract for expatriate employees if no fixed term is specified. Thus, in practice only Saudi nationals may have indefinite term contracts.

In the event that none of these options is applicable, the Labour Court may, nonetheless, be willing to approve the dismissal of the employee for other reasons that it may deem valid, provided that adequate compensation is paid to the employee (e.g., the equivalent of three months' salary).

As a last resort, an employer may terminate an employment agreement with cause if the employee engages in egregiously inappropriate behaviour (e.g., by assaulting the employer; see below for a more detailed discussion of for-cause termination). In these cases, the employer must give the employee a chance to object to the termination and state his or her reasons for the same (Article 80, Labour Law).

Dismissal of employees bound to indefinite term employment contracts, in addition to a valid reason, requires that the employee receive written notice describing the reason for the dismissal. Employees who are paid monthly must receive the notice at least 60 days prior to the termination, whereas all other employees must receive such notice at least 30 days in advance. The employer may, however, forgo the employee's respective statutory notice period in exchange for a payment to the employee equal to the employee's wage for the duration of the notice period.

As a general rule, an employer must provide a dismissed employee with a statutory end of service reward or indemnity. The Labour Law, however, does not require the employer to pay the reward or any other indemnity in the following cases of for-cause termination:

  1. the employee assaults the employer or any of his or her superiors;
  2. the employee fails to obey the orders of his or her superiors or does not meet the essential obligations under his or her employment contract;
  3. if there is proof to suggest that the employee has adopted bad conduct or behaviour, or has committed an act affecting honour or integrity;
  4. the employee commits an act with the intention to cause material loss to the employer;
  5. the employee resorts to forgery in order to obtain the job;
  6. the employee is dismissed during his or her contractual probationary period;
  7. the employee is absent without a valid reason for a period of time specified in the Labour Law, so long as a warning is first served;
  8. the employee unlawfully takes advantage of his or her position with the employer in order to receive personal gains; or
  9. the employee discloses work-related confidential information or trade secrets (Article 80, Labour Law).

Irrespective of the way in which the employee's contract is terminated, the employer is required to pay the employee's wages and settle all of the employee's entitlements within one week of the dismissal or termination date. If the employee is an expatriate worker, then the employer must also bear the costs of a return ticket to the employee's homeland, unless the employee resigns in the absence of a legitimate reason (Article 40.2, Labour Law).

In cases in which an employer wishes to terminate the contract of an employee for cause, but the employee disputes the basis of the termination, the parties may enter into a settlement agreement in order to avoid protracted litigation before the Commission for the Settlement of Labour Disputes, which has jurisdiction to adjudicate disputes between employers and employees. Usually, agreements to settle are entered into between the parties after an employee has already filed a complaint.

ii Redundancies, conclusion of certain activities and closure

Redundancies are deemed to be valid reasons for terminating employment contracts. If company restructuring or some other business decisions lead to redundancies in personnel, a company may terminate the contracts of certain redundant employees, provided that it fulfils the statutorily mandated notice period or makes payment in lieu thereof.

In addition, where a company ceases operations in a certain activity, or ceases operations altogether, the amendments to the Labour Law that went into effect in 2015 provide, as a matter of statute, that the contracts of the relevant employees working in such operations may be terminated (Article 74).